Introduction
Cost accounting a
network – a case study
Larry Levine and
Betsy McClain
The authors
Larry Levine is Director of Computing at Dartmouth College,
Hanover, New Hampshire, USA.
Betsy McClain is Director of Fiscal and Auxiliary Services,
Computing Services, Dartmouth College, Hanover, New
Hampshire, USA.
Abstract
Regardless of how they are budgeted, information technolo-
gy (IT) costs must be paid. Most schools offer some comput-
ing services at no cost to the individual or unit and some that
are charged back to users and units. Typically, common good
services are centrally funded, and services that differentially
benefit specific individuals or units are charged for. How
services are funded often reflects a school’s philosophy about
IT and about finances. Preferably, IT funding mechanisms
deliberately help shape and influence an institution’s IT and
services philosophy, as opposed to an IT or service philosophy
being unintentionally shaped by fiscal policies that follow no
particular strategy. Levying fees to users on an individual or
departmental basis may yield a different demand and
expectation of IT services than when costs are borne by a
central budget. Quantity and quality, degree of centralization,
and administrative complexity of services are major variables
in determining funding. Also at stake is the degree to which
an institution wishes to endorse, suppress, control or expand
IT services. These issues are specifically illustrated through a
case study of the formulation of a new budget and cost
accounting model to both finance an institution-wide
network upgrade and to maintain that network.
Campus-Wide Information Systems
Volume 15 · Number 4 · 1998 · pp. 122–127
© MCB University Press · ISSN 1065-0741
122
This paper presents a case study of how Dart-
mouth College pays for its physical data network.
We first present a brief overview of paying for
information technology costs in order to provide
context for our case study.
For our purposes, there are three types of IT
consumers: faculty, students, and staff, and a
funding continuum anchored by individual
charges at one end and central charges at the
other. A typical example at the individual charge
end is the computer store. Generally, an individ-
ual as a customer at the store buys goods at a
certain price. A typical central charge is basic
consulting. You can usually call or visit a consul-
tant to ask a basic question without paying an
individual fee. Even these examples may be
reversed. Faculty, students, or staff may be regu-
larly provided with a computer from centralized
funds (for students this could be “buried” in
tuition), and some schools might charge individ-
uals for consulting contacts. Any such examples
can get much more complex. Computer stores,
whether outsourced or not, may be partially
centrally subsidized. The “profit margin”
charged at a store may be used to subsidize other
IT services, perhaps basic consulting services.
Consulting may charge for some services and not
others. Also, a service may also be provided
“free” to some individuals but at a cost to others.
Unless an institution has strict and limited
financial models that affect IT and all other
services, there are many possible ways to pay for
IT. It would be hard to find a school that is com-
pletely at one end or the other of the funding
continuum; i.e. a school that devotes no general
funds to IT services or that charges for every
single IT service it provides at the individual
level. And so, the fun begins.
How funding reflects philosophy and may
be used to shape response to services
It has been remarked that a large pile of horse
manure left on a busy street corner with a sign
that says FREE will be quickly gone. Central
This paper was presented at the 1997 CAUSE annual
conference and is part of the conference proceedings,
The Information Profession and the Information
Professional, published online by CAUSE.
 Cost accounting a network – a case study
Larry Levine and Betsy McClain
funding, typically for some service considered
basic and crucial to an institution, can lead ser-
vice consumers to think a service is “free.” How-
ever, only senior administrators will likely truly
appreciate the costs of a “free” service. A simple
example is plant services. You expect there to be
electricity, heat, water, etc. in your work environ-
ment. When you turn on the lights at your office
you do not think much about the cost. Is your
institution encouraging you to waste electricity,
to efficiently depend on a basic and necessary
service, or both? In general, the more a service is
considered to be critical, the more centrally it is
funded. The opposite is also true. If a service is
not considered by senior administration to be
critical, it receives little central support, either
monetarily or otherwise. A single service might
illustrate both cases. For example, an institution
might offer “free” (100 percent centrally funded)
videotaping of a regular credit-granting course,
but, fully charge an individual office for a guest
speaker whose presentation is open to the public.
Even these examples can become complex. An
office that brings in many public speakers might
successfully argue for a central budget increase to
support the rising costs of recording famous
speakers.
As IT professionals, we can consider the
variety of funding mechanisms that may be
available to us not as impediments to all the
service demands we try to fulfill, but as creative
possibilities to achieve sufficient and ongoing
funding for our programs.
When is central or noncentral funding of an
IT service better?
The issue of when a service should be centrally or
noncentrally funded is a complex one that
depends on an institution’s history and culture,
as well as economic factors and the service in
question. In general, a common good service,
one whose base levels should be equally available
to have and have-not units, is better centrally
funded. Services that are not a necessity for each
unit, or at least services beyond a minimal base
level, might be charged back at the unit or indi-
vidual level. Centrally funded services can be
more cost-effective than noncentrally funded
services, or they can be relatively cumbersome
and unresponsive. This latter instance may seem
especially true to departments that have more
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resources than others. There is no simple answer
and solutions are typically situational.
How can you change from one to the other?
The funding of an IT service may be altered to be
more or less centralized. Moving from central to
noncentral funding may be seen by some as
unfair cost shifting. A centrally funded service at
least has the appearance to individuals of being
“free.” If central funding is decreased or removed
and chargeback begins, then something that was
at least “free” suddenly must be paid for by
individual or departmental funds, even if
absolute costs to the institution decrease. Argu-
ments for moving from central to noncentral
funding are typically to free up central funding
for a more crucial service and to let “free market
forces” determine the fate of a less critical ser-
vice. Moving a service from noncentral to central
funding might occur in two ways. The rarest way
is for new central funds to be allocated with no
concomitant recovery of funds from noncentral
units to a central budget. More typically, a non-
centrally funded service’s funding is centralized
by identifying funds allocated to this service in
budgets around an institution and rolling those
funds into a central pool. As one might guess, to
be successful, this transition is not typically done
by fiat but through a consensus building process
and a supportive fiscal administration.
Financing the Dartmouth College data
network
At Dartmouth, our data network has been a
source of technical pride since 1985, when it
became campus-wide, including the residence
halls. Network funding, however, has had a more
tenuous history. Effective fiscal year (FY) 1996,
we took a mixed central and noncentral funding
model that had inadequate support for network
maintenance and no support for network
upgrades, and created a central model that
dynamically provides for both. Briefly, network
funding had been based for over ten years on a
hodgepodge of charged back and central funds.
The chargeback mechanisms had decayed to the
point where they yielded a relatively small
amount of funds and had little logic to them.
Central funds were frozen at a fixed amount.
This situation became intolerable when it
 Cost accounting a network – a case study
Larry Levine and Betsy McClain
became obvious that most of the physical net-
work had to be upgraded, a project with estimat-
ed capital costs of $4.5 million.
Driving the decision to alter the funding
model was not only recognition by senior officers
that an upgrade was necessary, but that the data
network was the sine qua non of Dartmouth’s IT
environment, that the IT environment was criti-
cal to scholarship and administration, and that,
therefore, a data network was a common good
that should be centrally provided at a minimal
base level to all segments of the institution, with-
out individuals or noncentral units and depart-
ments needing to budget for it, at least at a base
level. This recognition was accomplished by a
series of communications from computing ser-
vices to key senior administrators, and included
working with one or two such administrators who
demonstrated a willingness to champion the
cause of the network with other decision makers.
On the encouragement of the vice president
for finance, computing services also actively
partnered with plant operations (at Dartmouth,
known as facilities operations and management)
in all phases of the network upgrade project. This
partnership resulted in even greater project
momentum, and provided a beneficial exchange
of project management techniques. Facilities
operations and management provided expertise
regarding the installation of conduit, construc-
tion, and finish work. The exchange of project
management techniques was at times a source of
great conflict, but has finally resulted in a com-
fortable and productive ongoing relationship that
continues to generate subsequent projects. This
partnership also resulted in the network upgrade
project budget including much needed upgrades
for phone and video, and support for investment
in a within-building raceway and conduit plant
that will provide for relatively easy and inexpen-
sive future wiring upgrades.
In short, the data network came to be seen in
part as a basic utility, like water, electricity, and
heat. At the same time, it remained as the foun-
dation of IT services, a good that is developed
and nurtured by IT professionals who form an
integrated organization with other IT service
providers who provide services layered on the
data network – academic and administrative
specific applications, and basic consulting sup-
port. Funding for the data network remains
separate from other services. Data, telephone,
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and video network funding are three separate
budgets. In future years, when technology drives
data, video, and telephony together technically,
funding mechanisms will likely follow suit.
At present, the data network, both operational
maintenance and upgrade capacity, is centrally
funded at the level of Dartmouth’s three profes-
sional schools; the Office of Residential Life,
which is responsible for all student residence
facilities; a handful of other auxiliary operations;
and Facilities Operations and Management,
which has responsibility for the bulk of Dart-
mouth’s facilities.
Network cost accounting history
The recovery of costs associated with running
our campus data network has undergone a signif-
icant shift within the last two years. In the past,
the various departments on our campus were
charged a fixed fee loosely tied to the number of
network connections in use by their department.
This fee was not supported by any true cost
accounting, but, rather, was fashioned (both in
amount and the way it was recovered) after the
monthly telephone line charge.
Departments budgeted the network port
charges as line-items within their program bud-
gets. As with any expense, there was constant
pressure to reduce this line-item to free up
resources for other programmatic needs. Depart-
ments avoided increases in costs by daisy-chain-
ing off of existing network connections, creating
not only network management nightmares but
less than ideal working conditions for its employ-
ees. With hundreds of individual departmental
accounts being affected by the network port
charges, there was an unmanageable amount of
contact between the network billing administra-
tor and the cadre of administrative assistants on
campus. Plus, because there was no sound ratio-
nale for the charge beyond the need for the IT
budget to defray some of the data network oper-
ating costs, much discretion was exercised in
reducing a department’s charge.
The network operating costs shifted to the
departments via this earlier model covered only a
portion of these costs borne by the computing
services organization. Without a mechanism in
place to tie the recovery of funds to the actual
costs of the network, it was clear a new model was
needed as our campus looked at the prospect of
 Cost accounting a network – a case study
Larry Levine and Betsy McClain
upgrading our network, and as the ongoing
maintenance of the network put more pressure
on the IT operating budget.
Instituting a new budget model
At the time support for a network upgrade was
being gathered among senior administrators, the
college instituted policies governing cost
accounting standards and institutional charge-
backs. Sparked by federal grants management
issues, the college examined a number of areas
where costs for services were distributed to client
departments; this examination led to require-
ments for a formal rate calculation to support the
costs distributed to other departments. The data
network costing model was one of the first ser-
vices to be assessed and redeveloped under these
new college policies. There was no question
among the budget office, the IT organization and
key fiscal administrators that the model for net-
work port charges needed to be revised.
Our emerging partnership with Facilities
Operations and Management in planning the
network upgrade project led to a natural sugges-
tion that active network connections be consid-
ered a facilities expense. As technology continues
to become more and more an integrated part of
an employee’s experience, it seems obvious to
begin thinking of an active network port as a
utility; that is, just as one’s office has light, heat,
and telephones, the office should have an ade-
quate network connection.
Distributing network costs as facilities costs
had a lot of immediate advantages for our cam-
pus:
• The facility and its use, instead of the financial
conditions of individual departments, begin to
define the level of network connectivity.
• Points of contact for questions regarding
network cost distribution are reduced to a
handful of individuals who have a thorough
understanding of the model, resulting in a
saving of IT administrative effort.
• An annual cost accounting must be performed
and rates adjusted to reflect changes in costs
and/or changes in numbers of active ports.
This cost accounting must be done and results
provided to facilities budget managers in time
for setting the upcoming year’s budget. Previ-
ously, the model was too loose, had lots of
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grandfathered deals, and there was no defensi-
ble rationale for the amount of the fee.
• With a $4.5 million network upgrade on the
boards, we were able to sell the impact on the
operating budget as an enhancement of our
facilities infrastructure – this “sell” would have
been extremely difficult if we had to effect
each of the individual operating budgets across
campus. Many departments driven by other
demands on their budget would have climbed
on the “we do not need Ethernet – we are
doing fine” bandwagon and protested any
increase in fees.
After building consensus among the senior fiscal
administrators to support a facilities-based net-
work cost accounting model, we worked with the
budget office to explore how we would be able to
seed the FY 1996 facilities budgets with funds to
cover these charges. The budget office tapped
college departments for their individual line-item
budgets for network port charges and reallocated
these funds to Facilities Operations and Manage-
ment and the Office of Residential Life. The
professional schools and the remaining auxiliary
operations were informed of the shift to a facili-
ties-based model and were responsible for their
area’s budget reallocation. This shift was seen as
an overall positive by the campus as it reduced
the noise in the individual departmental budgets,
the departments would be getting Ethernet
connectivity with the upcoming network
upgrade, and there would not be the same incen-
tive to cut corners on providing adequate net-
work connectivity in a department.
Accounting of costs
Certain costs of running the network are cap-
tured in a discrete general ledger account. These
are costs that are easily identified as being dedi-
cated to the operation and maintenance of the
campus network: salaries and benefits of network
technicians; telephone lines and other connection
fees; various hardware expenditures. There are,
however, other costs across the organization to
maintain the network. These include: systems
assurance personnel; administrative support;
software development costs. During the transi-
tion towards a full cost accounting and facilities-
based model, computing services was quite
aggressive in identifying costs across the
 Cost accounting a network – a case study Campus-Wide Information Systems
Larry Levine and Betsy McClain Volume 15 · Number 4 · 1998 · 122–127

organization that could be directly tied to the Table I Cost accounting of the Dartmouth College data
maintenance of the network. Of course, it was to
Calculation for FY 1998 charges to facilities
computing services’ benefit to off-load costs to
cost centers ($)
the network wherever possible, but we were held
to only those we could make a legitimate argu- Costs charged directly to network operations
ment for to the college’s cost accountant (whose account:
interpretation of some items was not nearly as Salaries and benefits 145,000
liberal as ours!) Miscellaneous non-compensation costs 15,000
Accounting for the debt service component of Rewiring chargebacks (20,000)
the network upgrade project has been more NYNEX, BBN planet connectivity 75,000
complex. These costs are being funded with Capital equipment (hardware and
external debt, and funds to cover the related debt electronics) 100,000
service will be recovered through the operating Subtotal 315,000
budget via the network cost accounting model. Other IT costs allocable to network operations
Although the project was not expected to be Network records 75,000
completed until June 1998, we had already begun Chief systems engineer 105,000
recovering a portion of the debt service in the FY Hardware maintenance 40,000
1998 network charges. Facilities operations and Software development 40,000
management and the office of residential life will Director of technical services 25,000
be receiving an additional budget increment to Administrative support 10,000
offset the increase in the network port charges Subtotal 295,000
from the debt service for the network upgrade. Total projected FY 1998 network operating
There is the expectation that the network cost costs 610,000
accounting model will break-even on an annual Under-recovery from FY 1997 50,000
basis. Of course, no matter how detailed our Projected FY 1998 debt service on
projections are in the spring for the upcoming network upgrade 75,000
fiscal year, there will be some under or over-
Grand total network operating and
recovery of costs through the network cost
upgrade costs 735,000
accounting model. These costs are reflected in an
÷ Active port count 11,500
adjustment to the future budgets and are recov-
Projected annual port charge , 64
ered through or go to subsidize future rate calcu-
lations.
See Table I for a detailed illustration of Dart- into a model that aggregates the number of active
mouth’s FY 1998 network cost accounting. network ports by affected cost centers. The
calculation for allocating costs to these cost
Assignment of costs to various areas centers is straightforward:
[No. of ports assigned to a facilities cost center
The operating costs of college buildings are ÷ Total no. of network ports] × [total network costs] =
managed by Facilities Operations and Manage- Costs charged to a particular facilities cost center
ment, the operating costs of the student residence
halls are managed by the Office of Residential The rates for the following fiscal year are set in
Life, the professional schools are responsible for March so that the affected cost centers can factor
the management of their facilities costs, and there any changes into their budget development.
are a number of auxiliary operations responsible There has been widespread support of allocat-
for their own facilities costs. The costs for operat- ing charges to the facilities on this basis as there is
ing the campus data network are allocated to a an intuitive nod that a facility with more active
particular facilities cost center based on the network connections should bear a greater pro-
number of active ports in a given facility. The portion of the network operating costs than a
technical services group within our IT organiza- facility with less active network connections.
tion maintains a database of all active network Certain costs of the network upgrade project,
ports on campus down to the room location. This such as raceway construction and in-building
information is summarized by building and feeds wiring, are not allocated on a per port basis. In
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 Cost accounting a network – a case study
Larry Levine and Betsy McClain
discussions with the fiscal managers of the vari-
ous affected facilities budgets, we were reminded
that some areas (primarily the professional
schools) had funded some improvements to their
networks in earlier years. These managers were
adamant that they not be penalized for earlier
renovations and that they not shoulder the cost of
others getting to where they have already paid to
be. These costs of the network project are allocat-
ed to the responsible cost center on a by-building
basis. The remaining costs of the network
upgrade project (the fiber backbone and the
electronics) will be shared by all facilities cost
centers based on proportion of active ports.
As the network upgrade project has
progressed, the absolute number of ports has
grown significantly. Although growth in ports
alone will drive the per port charge down, the
costs associated with an expanded, upgraded
network have also risen. This combination result-
ed in a 16 percent increase from FY 1997 to FY
1998 in our network port charges. As context, the
per port charge increased only 2 percent from FY
1996 (the first year this model was implemented)
to FY 1997.
Complexities
By and large, instituting a facilities-based model
to fund the operating and upgrade costs for the
campus data network has been advantageous to
our IT organization. However, some issues have
arisen:
• Service demands of individual departments,
such as moving port locations, must be consis-
tently managed so that extraordinary demands
do not add unreasonably to the costs borne by
all citizens of the network.
• One of our professional schools has embarked
on a significant technology initiative adding
many, many network connections. Because of
the high density and sheer volume of port
additions, this area did not want to pay the full
cost per port given the economies of scale of a
dense port installation. Negotiations hinged
not on a reduced fee per port but on the num-
ber of ports that would be actively used; these
negotiations will no doubt be revisited fre-
quently.
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• The need to closely manage costs to smooth
budgetary impact; IT cannot pass along spikes
in cost to facilities and auxiliary budgets with-
out a detailed explanation of what is driving
the change in rates. This level of detail was not
needed in the previous model as the impact
was diluted over many, many departments,
and the issue was insignificant relative to a
department’s overall budget.
• Certain computing services functions (includ-
ing portions of FTE) are now formally funded
by cross-charges coming in from the network
model. If the model changes, it may signifi-
cantly affect our ability to operate other com-
puting services functions at their existing level.
Conclusion
We have taken a poorly functioning network
funding model, and – driven by upgrade needs
and new institution-wide cost-accounting proce-
dures – have created a centrally funded facilities
based model. This model has further developed
our relationship with our plant organization.
Plant operations is not typically a close partner of
a computing organization, but this alliance has
proved beneficial in many areas. Development of
the funding model has also strengthened our
relationship with various financial offices and
fiscal officers around the institution, as we
worked with a few central areas to develop the
fiscal details. The new model, though a vast
improvement over the past, is far from perfect.
However, we now have a mechanism that has
forged new relationships for our IT organization,
that meets institutional and federal accounting
requirements, and that can be adjusted by con-
sensus and in the light of day with a few central
units.
Most importantly, base level data networking
is still “free” to individuals and departments,
network maintenance costs are tied to a logical
and dynamic scheme, provisions have been made
to ratchet-up base level network performance as
technology and needs advance, and our institu-
tion’s senior officers have been brought to affirm
the necessary and central role of the data network
and of IT for scholarship and administration.